Life Insurance With Living Benefits

Living benefits is a type of life insurance that pays either a lump-sum or monthly payment payments if you are diagnosed with a chronic, critical, or terminal illness.
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Life Insurance With Living Benefits

Written by Brian Greenberg
CEO / Founder & Licensed Insurance Agent

Last updated: April 17th, 2023

Reviewed by Grant Desselle
Licensed Insurance Agent

Best Living Benefits Life Insurance Companies

Foresters Financial

Family health benefit rider (free).
$100,000 - $5,000,000 in coverge.
Medical and no exam options.

Foresters Review
Those looking policies over $350,000 in coverage.Go
Mutual of Omaha

No medical exam.
No medical exam.
$25,000 - $300,000 in coverage.
Chronic and critical illness (free).
Residential damage rider (free).
Waiver of premium for unemployment (free).

United of Omaha Review
Those looking for a no medical exam life insurance option. Go

Most people who buy life insurance do so to provide financial security to a beneficiary when they die. But oftentimes traditional life insurance doesn’t cover the burdensome costs involved when a chronic, critical, or terminal illness strikes.

There is a solution, though — one that provides relief from the financial demands of such an illness. Some level term life insurance policies offer an add-on called “living benefits.” In the event of a long-term, catastrophic, or terminal illness, these benefits can be accessed while the policy holder is still alive. Here’s what you need to know about living benefits and how they might help.

Are You Prepared for an Unexpected Illness?

According to the American Cancer Society, there will be an estimated 1.7 million new cancer cases diagnosed and more than half a million cancer deaths in the U.S. this year.

The American Heart Association reports that cardiovascular disease is the leading cause of death globally, accounting for more than 17.3 million deaths per year. By 2030, that number is expected to exceed 23.6 million.

Furthermore, the Administration for Community Living says the average cost for long-term care in the U.S. exceeds $6,000 per month for a semi-private room in a nursing home and $3,000 per month for care in an assisted living facility.

Many people simply are not prepared for a chronic, critical, or terminal illness. They think that just because they have a health insurance or disability plan, they’ll be sufficiently covered in case of a sudden or serious health problem, such as a heart attack, stroke, or cancer diagnosis. The fact is that’s probably not true.

A great health insurance plan might cover a large part of the medical costs associated with such an illness, but there could be deductibles, copayments, and out-of-pocket expenses to deal with first. Plus, a health insurance plan won’t help you with lost income while you’re sick or recovering from your illness. A disability plan might help your financial situation while you’re away from work, but even the best of those can cover only about half of your lost wages.

Regardless of how old you are, how much money you make, or what kind of health coverage you have, two things are inevitable in the case of an unexpected illness: Your expenses will go up, and your income will go down — resulting in debt that could leave you paralyzed financially.

According to a study by Harvard researchers, over 60% of all personal bankruptcies in the U.S. are a direct result of medical problems. What’s even worse is that nearly 80% of the people included in this study who were suffering from a critical condition had health insurance at the start of their illness. This clearly demonstrates that additional protection is needed — more than what many of the health and/or disability plans are able to provide.

That’s where life insurance with living benefits — also known as an accelerated death benefit rider — can help you when you need it most.

Dealing With a Critical, Chronic, or Terminal Illness

Let’s say you develop a chronic illness that’s going to require a long-term approach to getting better. Or, you have a heart attack or a stroke, or you find out you have cancer. In each of these cases, there’s a good chance that you could recover and continue to live a full and meaningful life — if you’re able to afford the cost of proper treatment and care.

Unfortunately, your health insurance coverage will likely offer only a partial solution. Wouldn’t it be helpful if you could access your death benefit to help pay for costs related to your care, rather than digging into your savings account?

According to a USA Today report, one in four cancer patients or their families said they spent all or most of their savings to pay for treatment. And, one in eight people with advanced cancer turned down recommended care because of the costs involved.

“Growing numbers of people simply can’t afford to get the care we know they need,” said John Seffrin, CEO of the American Cancer Society. “We hear about a growing number of people turning down treatment.”

Some insurance companies will accelerate most of your death benefit if you qualify as terminally ill, but that seems like more of a death benefit for a death sentence. With living benefits life insurance, you can be covered in three separate areas:

  • Critical illness. Typically pays one lump sum if you have a serious illness such as cancer, or a heart attack or stroke.
  • Chronic illness. Typically pays a monthly benefit if you’ve been diagnosed as chronically ill and you are unable to perform two activities of daily living, such as bathing, dressing, or eating. This benefit could pay up to a quarter of the amount of your death benefit annually.
  • Terminal illness. Typically pays a benefit if you are diagnosed with a terminal illness and are told that your life expectancy is 12 to 24 months. These funds can be used for experimental medicine, preparing for final expenses, or any other purpose you deem necessary.

What Happens When You Have Life Insurance With Living Benefits?

If you were to experience a qualifying critical, chronic, or terminal illness — such as a heart attack, a stroke, or cancer, to name a few — you would have the option to collect part of your death benefit to help pay for expenses associated with your illness.

Of course, the amount of money your beneficiary would receive as part of your death benefit would be reduced by that amount. But, having the option to accelerate your death benefit funds could be a critically important step in helping you and your family through an unexpected health crisis. It might even be the saving grace that helps you enjoy a long and healthy life after your illness.

Frequently Asked Questions

What are the living benefits of a life insurance policy?

For those dealing with serious illness or long-term care needs, living benefits offer an invaluable lifeline – allowing access to some of your coverage while you’re still alive. These accelerated death benefits are triggered by pre-determined qualifying events and represent yet another way that life insurance can be beneficial in protecting your family’s future wellbeing.

How does life insurance with living benefits differ from traditional insurance?

Living benefits offer a unique advantage to life insurance policyholders – the opportunity for financial security during an unforeseen event. Unlike traditional policies, living benefit policies make it possible to access part of your death benefit while you’re still alive should specific qualifying conditions be met. This can provide essential support and peace-of-mind in times of unexpected hardship.

What types of life insurance policies offer living benefits?

Not all life insurance policies provide the same benefits. For those seeking financial protection while they’re still alive, term life, whole life and universal options offer living benefits that are not available with other products.

What are the common qualifying events for living benefits life insurance?

The qualifying events typically include terminal illness, chronic illness, and long-term care situations – all of which involve an extended period of medical need or disability. In order to be eligible, the insured must often meet certain criteria such as being unable to perform at least two activities of daily living (ADLs) and/or requiring substantial cognitive impairment supervision over 90 consecutive days.

How much of the death benefit can I access through living benefits?

Generally, up to 25%-100% of a death benefit is available for immediate use – with some policies providing coverage capped at specific dollar amounts.

What are the tax implications of accessing living benefits?

The IRS has established requirements for these types of distributions so that they may remain exempt from taxation. Consulting a knowledgeable professional can help you understand how accessing living benefits could affect your taxes.

Can I access living benefits more than once?

While some policies permit multiple withdrawals under varied circumstances, other plans may set restrictions on the number of times you are able to access them or cap off maximum benefit amounts. It is important to know your plan’s terms and limitations in order to ensure that living benefits remain available should you need them.

How do living benefits impact the death benefit?

Your life insurance with living benefits policy provides you with an advance on your death benefit, allowing for financial security in the event of a qualifying life event. When this happens, your beneficiaries will receive less than originally promised upon your passing since they’ll get paid only what remains after living benefits have been accounted for. To illustrate with an example, if a policyholder has $500K in coverage and withdraws $100K to use during their lifetime, then when the time comes their beneficiaries would receive $400K instead.

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